Shares of Latin America-based e-commerce and fintech company MercadoLibre (MELI 3.09%) are almost done making an impressive round trip. The stock had plummeted nearly 75% from its 2021 highs but has come within striking distance of a full recovery just three years later.
But a business lies beneath the stock that's wildly different now than back then. Investors may not realize how much upside there is for MercadoLibre. It took a new bull market to reinvigorate the share price, but the stock could just be getting started.
Here's why MercadoLibre is a bull market buy that could help you become a stock market millionaire over the long term.
Latin America has vast growth potential
MercadoLibre operates an e-commerce marketplace, logistics business, and fintech products and services business in Latin America. The region isn't as wealthy as the United States but helps make up for it with a larger population. With more than 668 million people, it's twice as populated as America. Importantly, consumers don't have widespread access to the internet or even basic banking services, in some cases.
Imagine combining your bank account, investments, and Amazon account into one app. That's MercadoLibre. Customers can buy goods online while accessing debit and credit services, payments, insurance, investing, and more on the fintech platform MercadoPago.
Maybe MercadoLibre was a bit ahead of its time. The company has been around for more than 20 years, but the gradual improvement in internet access may have helped create a tremendous growth spurt around 2020.
MELI Revenue (TTM) data by YCharts.
The exciting part for long-term investors is how much momentum the business has today and how much tread is left on those tires. Despite coming off surging growth during the pandemic, MercadoLibre is still posting big numbers. E-commerce marketplace volume grew 59% year over year in Q3, and total payment volume on MercadoPago grew 121% year over year.
MercadoPago has 49 million active fintech users, so there are still hundreds of millions of potential customers out there, which doesn't factor in new products and services in the future. There are many growth levers to pull.
Skyrocketing earnings growth
The company has gotten large and efficient enough that revenue growth flows through the business to earnings. Above, you can see that earnings per share (EPS) have virtually multiplied over the past few years, and MercadoLibre's still-robust growth is a good indicator it could continue.
Analysts believe earnings will grow between 30% and 40% annually over the next few years, which seems realistic if revenue keeps growing somewhere near its current pace. Cash is piling up on the balance sheet -- now up to $3.7 billion -- leaving just a few hundred million dollars in net debt. Investors could see management begin repurchasing shares more aggressively.
It's not a stretch to see the company grow earnings by 25% to 35% for an extended period, which can compound into tremendous investment returns when you're talking about holding the stock for years.
Look to the future, and MercadoLibre is a bargain
Hypothetically, suppose MercadoLibre grows earnings at an average of 30% for the next several years. I wouldn't take that for granted, but it's realistic based on the growth numbers the company is putting up and the room it has to keep picking up new customers.
Consensus analyst estimates for 2024 are that MercadoLibre will earn $33.71 per share. Growing earnings at 30% annually, MercadoLibre's future would look something like this:
| Year | Earnings-per-share |
|---|---|
| 2024 | $33.71 |
| 2025 | $43.82 |
| 2026 | $56.97 |
| 2027 | $74.06 |
| 2028 | $96.27 |
| 2029 | $125.16 |
Calculations and chart by author.
To be conservative, assume the stock's price-to-earnings ratio (P/E) drops from 51 to 30 during those years. Despite a declining valuation, the stock would still double from its current price. That's double-digit annual investment returns.
Like Amazon, MercadoLibre's businesses should become stronger against competitors and more profitable as they grow. What will MercadoLibre look like in 15 or 20 years? What new services will it come up with? After all, there are nearly endless ways to serve consumers.
And what's the cherry on top? MercadoLibre, with an $88 billion market cap, is still small enough to generate multibagger returns. It might never be as big as Amazon or grow to a trillion-dollar company, but 5x or 10x its current size isn't a stretch when you look out far enough.
Can that make you a millionaire when held in a diversified portfolio? You bet.
